Aussie rises on solid construction data

The Australian dollar has resumed its upswing on Wednesday, after showing no change a day earlier. In the European session, AUD/USD is trading at 0.7779, up 0.33% on the day.

Construction Work Done rebounds

There was encouraging news from the construction sector on Tuesday. Construction Work Done had sputtered, racking 10 straight losing quarters. The indicator finally burst through in Q1, posting a strong gain of 2.4%, above the consensus of 2.2%. This has given the Aussie a boost, and the currency is within striking distance of the round number of 0.7800.

With no tier-1 events out of Australia this week, US key releases could have a magnified effect on the direction of AUD/USD for the remainder of the week. The highlight is US Preliminary GDP for the first quarter, which will be released on Thursday. The initial estimate came in at 6.4%, and the consensus for the second estimate has been upwardly revised to 6.5%. Durable Goods is expected to slow to 0.7% in April, down from 1.0%.

Investors will also be monitoring Core PCE Price Index, which is the Federal Reserve’s preferred inflation gauge. The index is expected to rise to 0.6% in April, up from 0.4%. With the market still nervous about higher inflation, despite Fed assurances, a higher reading than the consensus could stir up investor jitters and boost the US dollar.

The Fed continues to trot out Fed governors to repeat the message that it remains committed to maintaining its ultra-accommodative policy and current QE levels. Inflation surged in April, which led to speculation that the Fed might contemplate scaling back QE. This gave the US dollar a brief boost earlier in May, but the market appears to have accepted the Fed line that higher inflation is transitory and any tightening of policy is a while off. This has put pressure on the US dollar viz-a-viz the major currencies, as investors look for alternatives other than the dollar to park their assets.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.7792 and 0.7854
• On the downside, there are support levels at 0.7690 and 0.7650

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